Agile in Talks With Loans Bankers After Failed Rights Issue

Christopher Langner

October 14, 2014 — 5:01 AM EDT

Agile Property Holdings Ltd., the Chinese developer whose stock plunged after its chairman Chen Zhuolin was confined by prosecutors, is in talks with bankers to delay loan repayments after scrapping a rights offer.

The shares rose as much as 6.6 percent in Hong Kong trading, rebounding from a record intraday drop of 31 percent yesterday, after people familiar with the matter said the Guangdong province-based company is in talks with HSBC Holdings Plc, Hang Seng Bank Ltd. and Standard Chartered Plc to extend the maturity of a $475 million eight-month bridge loan.

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Agile was to use the proceeds of a HK$2.8 billion ($361 million) rights issue to help repay part of the bridge facility, which is due in December, according to CreditSights Inc. Management is now exploring the option of another, smaller rights offering or the Chen family may inject about $200 million earmarked for the original rights issue as a shareholder loan or equity, and Agile would seek an extension on the loan balance, analysts led by Cheong Yin Chin said in an Oct. 13 note.

“This issue will have knock-on effects on other property bonds,” Christopher Lee, a managing director at Standard & Poor’s in Hong Kong, said by phone. “It will raise risk awareness among investors about the sector.”

Bonds Fall

Agile’s $700 million of 8.25 percent perpetual notes, sold to investors at par in January 2013, are trading at 68 cents on the dollar to yield 12.906 percent, BNP Paribas SA prices on Bloomberg show. They touched 67.5 cents on Oct. 10, a record low, and were trading at 84.25 cents earlier this month.

Its 8.875 percent $650 million of debentures sold at 100 cents on the dollar in April 2010 and due April 2017 are trading at 89.125 cents to yield 14.131 percent. They traded as high as 108.5 cents in November 2012, BNP prices show.

“Agile bonds have traded down to a stressed level,” Nomura Holdings Inc.’s Hong Kong-based credit analyst Agnes Wong wrote in a report today. “Although our base case assumes its creditor banks will extend Agile’s bridging loans in December, we expect sentiment on the bonds to remain weak in the meantime, as the banks are unlikely to make their decision much before the Dec. 4 maturity date.”

Agile’s shares closed up 5.1 percent at HK$4.15 in Hong Kong. The stock has declined 50 percent this year, compared with a 5 percent increase in the Hang Seng Properties Index. Agile has been downgraded by at least six brokerages, including JPMorgan Chase & Co. and Macquarie Group Ltd., Bloomberg data .

Chairman Confined

Other Chinese developers’ shares have also fallen as a slowing housing market and mounting inventory raise concerns about the liquidity of the builders. Guangzhou R&F Properties Co. has declined 30 percent this year while Country Garden Holdings Co., controlled by China’s richest woman Yang Huiyan, is down 37 percent.

Agile’s billionaire founder and chairman Chen Zhuolin was placed under the control of Chinese prosecutors last month. Chen’s wife told Agile that Chen has been confined at a “designated residence” since the evening of Sept. 30 by prosecutors in the southwestern city of Kunming, according to a company filing.

Agile said Chen will remain chairman and president while Chen’s wife, Luk Sin-fong, and his brother, Chan Cheuk-yin, have been appointed as executive directors, acting co-chairmen and acting co-presidents. The company doesn’t have any evidence at the moment that Chen’s detention is related to “any lost or misappropriation of funds or assets,” it said.

‘Totally Fabricated’

Agile on Oct. 7 said an article on a Chinese website, which linked it to former Chinese security chief Zhou Yongkang who is under investigation for corruption, was groundless and untrue. It said then the report damaged the reputation of the company and it reserved the right to take legal action.

The article claimed Zhou is the controlling shareholder of Agile, that Agile assisted in money laundering and Zhou had a close relationship with Chan Cheuk-yin, allegations the company said “are totally fabricated.”

Of the $475 million bridge loan, Standard Chartered holds $175 million and the other two banks $150 million each, according to data compiled by Bloomberg. Other banks that participated in a HK$5.628 billion loan from May 2013 and a HK$2.67 billion facility from June this year aren’t involved in the talks yet, the people familiar said, asking not to be identified because the details are private.

Cross Defaults

The company’s first installment on the HK$5.628 billion loan is due mid next month, Bloomberg data show. Under the loan agreements for the May 2013 and June 2014 facilities, the company’s shares can’t be suspended for more than 14 days, the people said. The loan agreement for the May 2013 facility also states that the chairman of the company can be replaced by his wife or a sibling, they said.

If Agile breaches covenants or defaults on payments for its May 2013 or June 2014 loans, cross defaults could be triggered, the people said.

Agile held three conference calls with investors yesterday in Asia, Europe and the U.S., CreditSights said. “During the calls, Agile was unable to provide any details on why Chairman Chen was held in custody as the company hasn’t received any notices from the government,” according to the Oct. 13 note.

“All the existing bank loans contain a clause to allow the chairman to be replaced by his affiliates without triggering any change of control puts, except for the syndicated loan signed in June 2014,” it said. “The company is currently seeking an amendment to this recent loan agreement.”

In the nine months through September, Agile achieved pre-sales of about 28.6 billion yuan ($4.7 billion) or about 59.6 percent of its 2014 financial year target, CreditSights said. From Oct. 1 to Oct. 10, “Agile estimates that the total pre-sales exceeded 2 billion yuan, within its expectations. The company remains confident of meeting its FY14 pre-sales target despite the chairman’s detention.”

During its conference call with investors yesterday, Agile said its total cash balance as of Oct. 10 was about 10 billion yuan, and about 60 percent of that was restricted cash, CreditSights said. Assuming no additional loans in the second half, “management guided to an ending cash balance of about 12 billion yuan to 13 billion yuan by December,” it said.

(An earlier version of this story was corrected to reflect chairman’s allowed replacements as per a loan agreement.)